If I may chime in with a few rather long comments. It is always a difficult situation when another school has created a problem by giving away belts to students that are far from ready for what that level represents. While I DO believe that junior black belts ARE a good idea for those that earn them, I don't believe that the belt should be watered down so that ANY six year old should be capable of it. I treat my jr. bb's like warrant officers in the military, they are recognized for their accomplishments and their ability, but they don't have the responsibilities or authority of an adult black belt which they can reach at 18.
My current policy for "imports" (people coming in from other schools, styles, ect) is that I did not give them their belts so it is not mine to take away from them. However, in our school, they will wear a white belt for a "break-in period" of 6-8 weeks for them to learn our curriculum (though it can be longer if they request more time) and then we will test them up to the level that they belong at. There are no test fees (I'm not fond of them anyway and only charge what our assn. requires) and most "real" black belts coming in from other schools end up at brown, though I had a Isshin ryu 3rd dan who also had a BJJ brown belt make it to black belt candidate this month (she's really good). Since our curriculum is a mix of TKD, BJJ, MT and the FMA's (and all systems must be at a high level by the standards of that system), it's hard for someone coming in to just jump right in at a high level. For example, even many of the best TKD black belts that have come in have a lot of trouble sparring muay thai or doing submission grappling with our brown belts which for us is fourth gup and two years out from their black belt(or jr. bb) test, so after they get in there for a few weeks, they pretty much understand.
We used to give people from other schools an option of wearing their old belts, but we found that always ended up creating problems. Virtually all of the people who took this option came from the "McDojo's" and I can't ever recall a single one, from my school at least, ever making it all the way through to black belt with our higher standards. The only ones who ever made it were the ones who had enough of a work ethic and had enough drive were the ones who chose to take the option that is now the only option we give. That's why we finally took the other option off the table. The only "good" that ever came out of the other method was letting our other students see the difference in the quality of our black belts and that of the imports from other schools. Like Mr. Sharkey, we did it with good intentions rather than ego, assuming that it was an oppurtunity to give the new student the value in their training that their old school did not, but should have. However, like I said before, I've never had ANY student come in who took that option that stayed through the long haul. OTOH, I have had many black belts who took the other option that have grown into fantastic black belts, even ones that have come in from McDojos, because they had the right mindset and were less concerned about rank and just wanted to learn and grow.
A quick comment about Mr. Sharkey's school's reputation if I may. His IS one of the top tournament schools in the USA. While tournament karate is not a major focus of my school (though some of our guys, including me, have been quite successful at it), I do recognize quality and people who have achieved excellence at what they do. Even though I am personally much more of a MMA, submission grappling, and full-contact/kickboxing guy, I still occasionally do open forms at the point tournaments and some of my students compete in forms, weapons and (even...egad) point sparring. Sharkey's people are a powerhouse on the open circuit and they have a high level of quality among their competitors;among the highest on the national circuit. Therefore, I really doubt that his generous approach towards the "imports from the McDojos" will do much to tarnish his rep.
One final comment regarding one posters suggestion that there should be no test and just to quietly move the students up. IMO, the real reason to have a belt system is to give the students something to shoot for and an incentive to grow. I believe that it really needs to be something that they must grow in to, otherwise it really has little to no value. I do use the lower belts to help build confidence and help beginners learn "yes, I can". In the early phases, as long as they are training and trying, they are going to pass. However, I will NOT let them test until I know hey are ready to blow that test out of the water. At this level, if they were to fail a test, it's my failure or that of my staff for putting them into that position that they were not ready for. At intermediate levels, I'm looking more at details and building the real skills and a strong foundation. Once again, I will delay a test rather than flunk a student. If they are weak on something and they they don't pass that particular part of the test, we will work with them hard with some private lessons and re-test them when they get it down. At advanced levels (brown belt which is roughly the two year mark in our system in a four year min. to bb), play time is over and now we are starting to train a student to become a black belt. What was encouraged before is now required and enforced. I will still try not to put a student up for a test until I am convinced that they are ready to pass, but sometimes the lesson that they really need to learn at this point is that failure to prepare is preparing to fail and I would rather them quit than compromise our standards. To me, the quality of our product as instructors is the quality of our advanced students, especially our black belts. If we are not producing a high quality product, then what we do and what we teach is of little value IMO.